CEO Compensation: 5 Wildly Overpaid CEOs

by Will Ashworth | May 2, 2014 10:55 am

Ex-Walmart CEO Mike Duke retired with $140 million[1] in deferred compensation. Over the five years Duke led Walmart, his total CEO compensation is impressive. Meanwhile, the average 55-to-64-year-old (Duke is 64) with both a 401(k) and IRA had an average of $261,400 in retirement savings[2] at the end of 2013. While Mike Duke enjoys a comfortable retirement, the average retiree pinches pennies to make it work.

Source: Flickr[3]

It hardly seems fair. And while my dad always use to tell me (correctly) that life’s not fair, that doesn’t mean we should like it or put up with it.

Duke is a classic example of what’s wrong with executive compensation today, but Walmart isn’t alone. Although 83% of Coca-Cola (KO[4]) shareholders approved its CEO compensation plan, it’s clear that major shareholders such as Warren Buffett have serious misgivings[5]. And so they should.

What other companies are dolling out excessive CEO compensation? Here are five examples of wildly overpaid CEOs.

CEO Compensation — Prudential Financial (PRU)

The Huffington Post works with the Center for Economic Policy and Research to study director compensation and how it affects CEO compensation. Of the Fortune 100, companies it found that former Prudential Financial (PRU[6]) director William H. Gray[7] made more money serving on corporate boards than 99% of all Fortune 100 directors.

In the five years between 2008 and 2012, Gray earned approximately $1 million per annum while the average CEO of the firms where he served as a director saw their earnings increase by a cumulative $3.5 million.

HuffPost points out that, during Gray’s time on PRUs board (2008 to 2012), its stock declined by 43% while the S&P 500 lost just 3%. Since CEO John Strangfeld has been CEO, PRU stock as gained just 2.8% compared to 47% for the SPDR S&P 500 (SPY[8]). In that time, Strangfeld has pulled in $132 million in total CEO compensation and beneficially owns 1.7 million shares of PRU stock.

It seems that both Strangfeld and Gray have lined their pockets over the years while shareholders were forced to settle with 3% growth. That hardly seems fair.

CEO Compensation — Morgan Stanley (MS)

Things are looking up at Morgan Stanley (MS[9]) when it comes to CEO compensation. Glass, Lewis & Co., a major proxy advisory firm, gave the investment bank a “D” grade for its executive pay practices[10] in 2013, better than the “F” it got last year.

The reason for the improved grade? Apparently, CEO James Gorman received a smaller pay package than some of Morgan Stanley’s peers. However, despite the favorable comparison with its peers, Glass, Lewis felt that Morgan Stanley wasn’t doing enough to align pay with performance and therefore recommend that shareholders vote no on the “say on pay” initiative when the annual general meeting convenes May 13.

While Gorman’s CEO compensation might appear fair relative to some of its peers, the fact remains that the executive received a 100% raise[11] in 2013, far better than the average MS employee. Furthermore, Gorman finished the year with $25.7 million in deferred compensation, almost 100 times higher than the average 55-to-64-year-old’s retirement package. But hey, it’s just money, right?

COO Compensation — Yahoo (YHOO)

This one doesn’t pertain to CEO compensation but rather COO pay. Henrique de Castro was the second in command at Yahoo (YHOO[12]) for all of 15 months. He botched the job so colossally that Marisa Mayer had to cut him loose — but not before paying him $109 million in severance.

AlterNet contributor RJ Eskow calls de Castro’s haul one of the best examples of “wildly overpaid rich folks.”[13] Yahoo shareholders can’t be happy about this hiring mistake.

You can look at this in one of two ways. Either Mayer made the worst personnel decision in the history of American public companies, or de Castro did one heck of a selling job on both the CEO and the board. Whichever theory you prefer, it doesn’t paint a pretty picture for Yahoo. If not for Alibaba, this company would be toast. Marissa Mayer could be moving on once Yahoo unloads the rest of its holdings.

And given the executive compensation debacle with de Castro, that’s probably a wise decision.

CEO Compensation — Nuance (NUAN)

I’ve spoken about Paul Ricci’s excessive CEO compensation[14] as recently as the end of March. The CEO of Nuance (NUAN[15]) has become the poster boy for excessive CEO compensation.

Boston Globe columnist Steven Syre recently dubbed Ricci the “most overpaid executive in Massachusetts.”[16] Syre points out that Ricci’s total compensation over the past three years was $87 million, while NUAN stock lost 16% of its value at a time when most stocks were flying higher.

TJX (TJX[17]) CEO Carol Meyrowitz came in second spot on that list, with $19.1 million in total compensation (almost $70 million behind Ricci). Of course, TJX stock gained 51% in 2013 and hasn’t had a losing year since 2008. Over the past three years, TJX has outperformed NUAN by 39% on an annualized basis.

Seyre also points out that Boston Beer (SAM[18]) CEO Martin Roper earned total CEO compensation of $1.5 million in 2013, just 5% of Ricci’s pay, despite doing a far superior job of managing his business.

CEO Compensation — Oracle (ORCL)

Oracle (ORCL[19]) CEO Larry Ellison is the fifth-richest person[20] on the planet, worth an estimated $50.4 billion, according to Forbes magazine. Unlike Mike Duke, Ellison hasn’t deferred much of his CEO compensation in recent years. At the end of fiscal 2013, Ellison’s non-qualified deferred compensation balance sat at $14.9 million, just $6.4 million higher than in 2009.

Clearly, when you are as rich as Larry Ellison is, you’re not worried about how much you’ve stashed away for retirement. Especially when you already own 1.15 billion shares[21] in a $183 billion market-cap company and receive $77 million annually in stock options. It boggles my mind that someone so rich would feel the need to line his pockets at the expense of other shareholders. His CEO compensation, given his wealth, is the most egregious example that I can find in the S&P 500.

As of this writing, Will Ashworth did not own a position in any of the aforementioned securities.